The Energy Report 1/10/20

Safe Place

The crude oil market is still working off risk premium as it appears that President Trump’s strong, decisive action against Iran and Iran’s face-saving response is working and making the world is a safer place. In fact because of the President’s bold action, one could argue that oil tankers and oil infrastructure are safer than have been in many years because Iran is signaling it will stand down after crossing President Trump’s red line by killing an American contractor.


According to the President, plans to blow up not only the U.S. embassy in Iraq but other U.S. embassies in other countries has been thwarted. President Trump said that the killing of the terrorist General Soleimani was to stop those attacks, and the action to protect the U.S. embassies was the anti-Benghazi policy. He said that, “we got there very quickly; this is the exact opposite of Benghazi.”


Now reports that the U.S. and Canada believe that Iran mistakenly shot down a Ukrainian civilian jet makes it even more likely that in the short term Iran will not launch any other attacks on anything oil. The world is a safer place.


The Wall Street Journal reports, ”U.S., Canadian and U.K. officials believe that a Ukrainian commercial aircraft that crashed shortly after takeoff from Tehran on Wednesday, killing all 176 people on board, was downed by a missile system fired by Iran, possibly by mistake. “We have a high level of confidence that this was shot down by Iran,” one U.S. official said Thursday. The official said the plane was being tracked moments before it went down by Iranian radar used to aim missiles. A second official said the U.S. believes Iran may have downed the aircraft by mistake.


Still, while oil is well off its pre-war fear highs, it is in a solid uptrend. Oil retested strong support and bounced, and while it may test it again, we fell that it should stay strong for other reasons. Namely, a record stock market and impressive economic data. Today’s all important jobs report should be a blockbuster.


Here is your chance to own a refinery! So many people think that owning a refinery is a license to print money, so why are there so many for sale? The latest, according to Reuters by Jessica Resnick-Ault and Laura Sanicola is, “Royal Dutch Shell Plc RDSa.L  who is looking to sell its oil refinery in Anacortes, Washington, according to three people familiar with the matter. If completed, this and other asset sales currently underway would reduce Shell’s North American refining operations to large plants on the U.S. Gulf Coast, said the people, speaking on condition of anonymity as the talks are private. Oil and gas major Shell has publicly committed to selling more than $5 billion of assets per year in 2019 and 2020. The Netherlands-based company is trying to use its global scale to build a powerful business as the world moves toward cleaner energy.


The refinery, located north of Seattle, can process 144,000 barrels per day (BPD) of crude oil, according to Refinitiv Eikon data. This is Shell’s third effort to divest a plant in the past year. In June, Shell agreed to sell its Martinez, California, refinery to independent refiner PBF Energy Inc PBF.N for up to $1 billion. The company retained advisers about a year ago to sell its 75,000-BPD Sarnia, Ontario, refinery. If all three sales are completed, including Anacortes, Shell would operate only three North American refineries: the 340,000-BPD Deer Park, Texas, refinery, a joint venture with Petroleos Mexicanos, and two refineries on the Louisiana coast that together can process almost 500,000 bpd of crude oil. Shell has also divested refineries in other regions, selling its 50% stake in the SASREF refinery in Saudi Arabia last year.”


Yet maybe it is time to bet on Canada! Bloomberg News reports that, “after big wins shorting U.S. shale companies last year, one energy hedge fund is turning its sights on the beaten-down Canadian oil sector. After gaining 40% last year, according to a person familiar with the results, Westbeck Capital Management is betting Canadian firms are better positioned because they don’t need to spend as much as their U.S. counterparts, giving them a higher level of free cash flow. Also, oil fields in Canada aren’t experiencing the rapid rate of production declines that has plagued companies operating in American shale fields.”


Natural gas is in a glut but a return to winter is going raise the risk of short covering. Still, the Wall Street Journal reports, “Relatively clean and flexible, natural gas has been described as “the champagne of hydrocarbons.” Lately, though, energy companies are treating it about as sparingly as a team that just won the World Series. Tremendous quantities are intentionally burned off to make way for oil production. The problem is likely to get worse in the U.S., the number four flarer of gas behind Iran, Iraq and world-leader Russia. It is more than an issue of waste: Flaring may be responsible for 1% of global greenhouse gas emissions according to Raymond James.” Must Read!


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In case you missed it! Phil’s guest appearance on the McKeany-Flavell Hot Commodity Podcast last Friday, September 20th talking about current energy market dynamics. LISTEN HERE!

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